Gold is poised to climb the most in two years as prospects for more economic stimuli by governments stoke demand for the precious metal as a bet against inflation, a survey shows.
Bullion for immediate delivery may reach $1,800 an ounce by the end of the year, extending gains this year to 15%, according to the median forecast in the Bloomberg survey of 15 traders and analysts at a conference last month in Hyderabad, India. That would be the biggest increase since a 30% surge in 2010, data compiled by Bloomberg show.
Gold is set for a 12th year of gains as the European sovereign-debt crisis boosts haven demand amid speculation of further policy easing by central banks, including the U.S. Federal Reserve, which may be considering a third round of quantitative easing or QE3. Investment holdings have expanded to a record because of demand for a hedge against inflation.
“The eurozone has been quiet of late, but that doesn't mean the problems have disappeared,” said Jeffrey Rhodes, global head of precious metals at INTL FCStone Inc., who expects gold to rally to $1,975 an ounce by the end of 2012.
“The U.S. economy has been sluggish, and there is a growing belief that there is going to be QE3 soon,” he said. “This anticipation is driving the market.”
Fed Chairman Ben S. Bernanke said last month that there is “scope for further action” from the U.S. central bank.
Chinese Premier Wen Jiabao has urged additional steps to support exports and help meet economic targets as evidence mounts the slowdown is deepening.
EUROPE STRAINS
“Europe's financial situation is straining at the seams, and with no fix forthcoming, demand for safe havens is likely to remain strong,” said Bimal Das, director at Scotia-Mocatta, the metals-trading unit of Bank of Nova Scotia.
The European leaders are preparing for a critical period in the three-year-old crisis that will involve the implementation of a European Central Bank bond-buying plan, a progress report by Greece's international creditors and a German court decision on bailout funding, which is expected Wednesday.”More cash is coming into the market from investors,” said Philip Klapwijk, global head of metals analytics at Thomson Reuters GFMS Ltd.
“We expect there to be QE3 [in coming weeks], and gold will move substantially higher,” he said. “The ETF demand has picked up and will continue to grow as prices rise.”
In the second quarter, investors George Soros and John Paulson increased their stakes in the SPDR Gold Trust (GLD), the biggest gold-backed exchange-traded product, Securities and Exchange Commission filings showed.
After becoming net buyers in 2009, central banks will buy close to 500 tons this year, according to the producer-funded World Gold Council.
Central banks added 254.2 tons to their holdings in the first half, the council said, as countries from Russia to South Korea pumped up reserves.
“There is official interest in gold and central banks are buying,” said Jeremy East, global head of metals trading at Standard Chartered PLC. “Central bank purchases are not driven by price but by asset allocation.”
LOSING STEAM
Gold may “lose steam quickly” if the market is disappointed by a lack of action to stimulate economies, according to a report from
Barclays PLC.
“For gold to extend its gains, it needs to continue to draw wider investor support in light of the fragile physical market,” analysts including Suki Cooper wrote in the report.
Gold imports by India, the biggest buyer, may decline this year as record prices in rupees affect demand, Mr. East said.
Consumption rose to a record 963.1 tons last year, driving bullion imports to a record 958 tons, according to the World Gold Council.
“The Indian currency has weakened and could weaken further, so demand may not come in,” Mr. East said.
The rupee fell to a record 57.33 per dollar June 22, making imports costlier.
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